Lufthansa to Cut Dividend Payout Ratio in 2015

Will Begin Paying Out Between 10% and 25% of EBIT Next Year

FRANKFURT—
Deutsche Lufthansa AG
DLAKY 2.74%
on Wednesday said starting 2015 it will cut its dividend payout ratio and change the profit figure used in the payment’s calculation, citing the need to account for its new depreciation policy.

Germany’s largest airline said it would begin paying out between 10% and 25% of earnings before interest and taxes, or EBIT, to investors in dividends starting next year. Its current dividend policy, which will remain in place this year, pays out between 30% and 40% of operating profit.

Lufthansa said it was switching to a more appropriate figure for the dividend calculations because the new depreciation period of its aircraft, which was broadened to 20 years from 12 in March, will artificially boost profits this year and next. Under the depreciation policy, the airline also is reducing the jets’ residual book value to 5% from 15% of purchase price.

Lufthansa also said it was lowering the payout ration because the EBIT figure is a structurally larger number than the operating result since it includes income from its subsidiaries.

The change in dividend policy was widely expected after Lufthansa said it would put it under review because of adjustments to the depreciation and amortization rules.

A Lufthansa spokeswoman said the new dividend policy allows for similar payouts as the old policy. Last year, Lufthansa paid out about €0.45 per share, or about 30% of the company’s operating profit.

While the company said it still expects to post around €1 billion ($1.24 billion) in operating profit this year and will keep the same dividend policy for the period, Lufthansa reiterated comments made by Chief Financial Officer Simone Menne in October that the 2014 dividend payment could be “limited” due to the sale of its IT unit.

The German airline in November closed a deal with International Business Machines Corp. to sell its IT infrastructure division to the technology company and then begin outsourcing its IT services to them as part of a broader restructuring of its systems unit. Lufthansa has said the move will reduce costs in the long term but result in a €240 million charge this year.

Lufthansa said it was still unclear how much the sale would impact this year’s dividend and that it would provide more information in March.

The airline said it would provide more details regarding the new policy changes on Thursday.